Friday, December 23, 2011

The Economics of Scrooge

Slate recently published an article entitled "What I like about Scrooge" by Steven E. Landsburg. It offers up various of Scrooge's pre-redemption traits as admirable and worthy of emulation. If this article is to be believed, the spirits of Christmas did Scrooge and the world a disservice by reforming Scrooge. He was a better man as a miser.

Landsburg lays out his case:

Here's what I like about Ebenezer Scrooge: His meager lodgings were dark because darkness is cheap, and barely heated because coal is not free. His dinner was gruel, which he prepared himself. Scrooge paid no man to wait on him.

Scrooge has been called ungenerous. I say that's a bum rap. What could be more generous than keeping your lamps unlit and your plate unfilled, leaving more fuel for others to burn and more food for others to eat? Who is a more benevolent neighbor than the man who employs no servants, freeing them to wait on someone else?

We can see from this that Landsburg views the world as a zero-sum system. There is a fixed amount of everything and the only way that anyone can have more is if someone else has less. He expands on this:

Oh, it might be slightly more complicated than that. Maybe when Scrooge demands less coal for his fire, less coal ends up being mined. But that's fine, too. Instead of digging coal for Scrooge, some would-be miner is now free to perform some other service for himself or someone else.

{...} In this whole world, there is nobody more generous than the miser—the man who could deplete the world's resources but chooses not to. The only difference between miserliness and philanthropy is that the philanthropist serves a favored few while the miser spreads his largess far and wide.

All of this puts Landsburg at odds with leading economic theory. The whole idea of economic stimulus is that money, once earned, is spent again. The speed that people earn and spend money determines economic growth. When this slows then the economy contracts causing a recession or a depression. For the last four years, economic policy has been centered on encouraging people to spend more money. Economists devote their careers to calculating how to get the most benefit from spending. While they disagree on how money should be spent, they are unanimous that taking money out of circulation is the worst thing that can happen.

Landsburg even gives examples of this. His hypothetical coal miner could have made more money if Scrooge expanded the market. Instead he either has to look for alternate sources of income or just live without (which Landsburg would probably applaud). One wonders if Landsburg would appreciate the freedom of selling fewer articles?

Ironically, Scrooge's income depends on people behaving differently than Scrooge himself. Dickens never specifies what Scrooge does. He is often portrayed as a money lender but Dickens describes his business as being in a warehouse and Scrooge is familiar with the exchanges. Possibly he is a speculator, buying and selling commodities for a profit. Regardless, his income depends on demand for something - money, commodities, etc.

It should also be pointed out that Scrooge's behavior goes beyond simple miserliness. If Scrooge was solely interested in money then he would never pass up a free meal at his nephew's expense. A better explanation is that Scrooge was punishing himself for choices made in his youth. It was only after facing those choices and the eventual resolution that he comes out of his shell and becomes a friend to his nephew and employee.

So why did Landsburg write such an article? Possibly he is a devoted follower of Al Gore and sincerely wants everyone to live like Scrooge in an effort to conserve the planet's resources (a sacrifice that Gore himself is unwilling to make). More likely this was just an attempt to fit Slate's format of justifying counter-intuitive titles.

Merry Christmas

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